The University of Chicago Law School Faculty Blog

Assistant Professor Daniel Hemel on the Supreme Court’s certiorari grant in United States v. Texas: In many respects, the Supreme Court’s cert grant earlier this week in United States v. Texas was utterly unsurprising. The Fifth Circuit Court of Appeals...Assistant Professor Daniel Hemel on the Supreme Court’s certiorari grant in United States v. Texas:
In many respects, the Supreme Court’s cert grant earlier this week in United States v. Texas was utterly unsurprising. The Fifth Circuit Court of Appeals affirmed a nationwide injunction blocking a Department of Homeland Security policy that would have allowed approximately 4 million parents of U.S. citizens and lawful permanent residents to seek “deferred action” and temporary authorization to work in the United States. The Supreme Court’s own Rule 10 says that in deciding whether to grant cert, the Court considers whether a lower court has ruled on “an important question of federal law that has not been, but should be, settled by this Court.” United States v. Texas meets that standard by any measure.
In one respect, though, the cert-stage proceedings in United States v. Texas pose a puzzle. (And no, I’m not referring the Court’s decision to add a fourth question regarding the Take Care Clause of Article II; as Marty Lederman and others have explained, the Court had reason to add that question even if it has no intention of going Texas’s way on the constitutional issue.) I’m referring instead to the third question: “Whether the Guidance was subject to the APA’s notice-and-comment procedures.” Of course, there is no mystery as to why the Supreme Court granted cert on that question: the notice-and-comment issue is one of two independent bases for the Fifth Circuit’s ruling, so the Supreme Court would need to reach that issue if it wants to overturn the Fifth Circuit’s decision on the merits. The puzzle is why the Obama administration is still litigating this issue despite the fact that DHS could moot the notice-and-comment question if it wanted to.
A bit of background: In November 2014, Homeland Security Secretary Jeh Johnson sent a memo to top DHS officials outlining new policies for exercising prosecutorial discretion. Most significantly, the Johnson memo directs DHS officials to establish a process that will allow parents of U.S. citizens and permanent residents to apply for “deferred action.” The memo states that applications will be evaluated on a “case-by-case basis,” and that deferred action will be limited to parents who—among other criteria—have not been convicted of a felony or significant misdemeanor. DHS’s approval of an application for deferred action means that the Department has decided to forbear from removing the applicant for three years. Successful applicants also may seek work authorization for a three-year period. The program is known as “Deferred Action for Parents of Americans and Lawful Permanent Residents” (DAPA), and DHS planned to begin accepting applications in May 2015.
In December 2014, Texas and 25 other states sued in federal district court seeking to enjoin implementation of DAPA. Texas’s substantive arguments are (1) that DHS lacks statutory authorization for DAPA, and (2) that DAPA violates the Take Care Clause of Article II. Texas’s procedural argument is that DAPA is subject to the Administrative Procedure Act’s notice-and-comment requirements, and that DHS failed to comply with those requirements entirely. In February 2015, a federal district court held that Texas was likely to prevail on its notice-and-comment argument, and the court entered a nationwide preliminary injunction against implementing DAPA. In November, a Fifth Circuit panel voted to 2-1 to affirm the injunction—on the procedural ground that DHS failed to go through notice and comment and on the substantive ground that DHS lacks statutory authority for the DAPA program.
I am not the first to observe that DHS could moot the notice-and-comment question by publishing the Johnson memo in the Federal Regis[...]

Assistant Professor Daniel Hemel and UC Berkeley Jurisprudence & Social Policy Ph.D. candidate David Louk on next Monday’s Supreme Court oral argument in Friedrichs v. California Teachers Association: The Supreme Court will soon decide whether public-sector employers can maintain “agency...Assistant Professor Daniel Hemel and UC Berkeley Jurisprudence & Social Policy Ph.D. candidate David Louk on next Monday’s Supreme Court oral argument in Friedrichs v. California Teachers Association:
The Supreme Court will soon decide whether public-sector employers can maintain “agency shops” in the roughly two dozen states that now allow these arrangements. In an “agency shop,” an employee who chooses not to join her local union must nevertheless pay the union an “agency fee” to cover her pro rata share of its collective bargaining expenses. Agency shop supporters justify these arrangements as a means of preventing non-union members from free-riding off the union’s bargaining efforts. Opponents—including the plaintiffs in Friedrichs—say that agency shop arrangements violate the First Amendment rights of non-union members who are forced to pay a fee to an organization whose views they reject.
In the 1977 case Abood v. Detroit Board of Education, the Supreme Court held that agency shop arrangements in public-sector workplaces do not violate the First Amendment as long as nonmembers’ fees are applied toward collective bargaining costs rather than unrelated “ideological activities.” More recent decisions have suggested that Abood may be ripe for reconsideration, and the question presented in Friedrichs explicitly asks whether Abood should be overruled. We take no position on that constitutional question. We do think, however, that the practical implications of overruling Abood could be more muted than either side recognizes. Even if Abood is overruled, public-sector employers in sympathetic states still will be able to ensure that unions are reimbursed for their collective bargaining costs (including the cost of representing nonmembers). They just might have to take a different (and more straightforward) approach than the agency shop.
In a new essay in the University of Chicago Law Review Dialogue, we explain in detail how this alternative arrangement might work, but here’s a quick synopsis: Let’s say a union in California represents a school district’s 100 teachers and has collective bargaining costs of $100,000 per year. To make things simple, let’s also assume that all teachers in the district earn $50,000 annually. Under the existing agency shop arrangement, every teacher must pay $1,000 to the union to cover her share of the union’s collective bargaining costs. (Union teachers also pay additional dues to cover expenses unrelated to collective bargaining.) So in our example, although teachers nominally earn $50,000, their effective pay is really $49,000, because each pays a minimum—and mandatory—$1,000 agency fee. A more straightforward way to accomplish the same result would be to adopt what we call the “direct payment alternative,” whereby the district would reimburse the union directly for its bargaining costs. To offset these costs, the district might then want to reduce each teacher’s salary from $50,000 to $49,000. The teachers, however, would be no worse off: They would no longer have to pay $1,000 in agency fees or union dues, so their net wage (before taxes) would be the same as in the agency shop arrangement.
Even if five justices vote to overrule Abood, it seems unlikely that the Court’s decision would prevent public-sector employers from adopting the direct payment alternative. Money may be considered speech under current First Amendment doctrine, but expenditures of government money count as “government speech.” And the Supreme Court’s “government speech” precedents, such as Rust v. Sullivan, establish that the government has wide latitude to make policy judgments when it chooses what speech to fund. Indeed, the direct pa[...]

Assistant Professor Daniel Hemel on taxes paid by the highest earners in the United States: The IRS released data this week on the 400 individual income tax returns with the highest adjusted gross incomes (AGIs). According to the IRS data,...Assistant Professor Daniel Hemel on taxes paid by the highest earners in the United States:
The IRS released data this week on the 400 individual income tax returns with the highest adjusted gross incomes (AGIs). According to the IRS data, the average federal income tax rate for the top 400 was 22.9% in 2013, down from a peak of 29.9% in 1995 (though up from a low of 16.6% in 2007). Much has been written about the IRS data already (and no doubt more will be written in the coming days and weeks), but three trends deserve more attention than they have drawn thus far.
First, and most remarkably, charitable contributions by taxpayers in the top 400 have increased dramatically since the mid-1990s—both in absolute dollar terms and as a percentage of income. In 1995, the average taxpayer in the top 400 reported charitable contribution deductions of $2.9 million, slightly less than 5.6% of AGI. In 2013, that number was $32.8 million—more than 12.1% of AGI. That fact alone explains a sizeable share of the decline in the average tax rate of the top 400. Assuming that charitable contribution deductions offset income that otherwise would have been taxed at the top marginal rate, then charitable deductions reduced the average tax rate of those in the top 400 by 2.2 percentage points in 1995 and by 4.8 percentage points in 2013. If so, then 37% of the decline in the average tax rate of the top 400 (i.e., 2.6 percentage points) would be attributable to the increase in charitable contribution deductions.
Second, deductions for taxes paid to state and local governments (as well as taxes paid to foreign governments for which no foreign tax credit was claimed) rose from 5.2% of AGI for the top 400 in 1995 to 7.8% of AGI in 2013. Some of this increase might be explained by the fact that taxpayers have had the option of deducting state and local sales taxes in lieu of income taxes since 2004; however, the available data suggests that the 2004 change made at most a minor difference for the top 400. (The taxes-paid deduction as a percentage of AGI for the top 400 barely budged when the change in law went into effect—from slightly more than 4.0% in 2003 to slightly less than 4.1% in 2004.) More likely, the rise in taxes paid reflects the rise in state income tax rates: California’s top rate rose from 11% in 1995 to 13.3% in 2013, and New York’s top rate rose from 7.5% in 1995 to 8.82% in 2013. And assuming that taxes-paid deductions offset income that otherwise would have been taxed at the top marginal rate, then 14% of the decline in the average tax rate of the top 400 (i.e., 1 percentage point) would be attributable to the increase in taxes-paid deductions. (Those in the top 400 who are subject to the alternative minimum tax wouldn't be able to utilize the taxes-paid deduction, but the AMT affects very few among the very rich: only 2.4% of income taxes paid by the top 400 comes through the AMT.)
Third, foreign tax credits claimed by the top 400 increased from less than 0.7% of AGI in 1995 to nearly 1.2% of AGI in 2013. The increase in foreign tax credits claimed explains roughly 8% of the decline in the average tax rate of the top 400 between 1995 and 2013 (more than 0.5 percentage points). If foreign tax credits claimed reflect foreign taxes actually paid, and if the taxes-paid deduction also reflects state and local taxes actually paid, then taxes paid by the top 400 to all governments (federal, state, local, and foreign) amounted to 35.8% of AGI in 1995 and 31.9% of AGI in 2013. On those assumptions, total taxes paid by the top 400 fell by 3.9 percentage points from 1995 to 2013—still a substantial decline, but much less than 7 percentage point drop that one sees when one focuses exclusively on federal income taxes.
These calcu[...]

Assistant Professor Daniel Hemel on the rise and fall of temporary tax laws: Since the early 2000s, Congress has filled the Internal Revenue Code with numerous sunset provisions. These provisions by their terms apply for a limited period, although Congress...Assistant Professor Daniel Hemel on the rise and fall of temporary tax laws:
Since the early 2000s, Congress has filled the Internal Revenue Code with numerous sunset provisions. These provisions by their terms apply for a limited period, although Congress regularly renews them through annual “extenders” legislation. Examples have included the tax credit for research and experimentation expenses, the Subpart F exception for active financing, the deduction for state and local sales taxes, and the American Opportunity Tax Credit for the first four years of postsecondary education. Interest groups have devoted significant resources toward ensuring that members of Congress extend these tax breaks from year to year. Tax law scholars, in turn, have channeled considerable energy toward explaining the prevalence of sunset provisions in tax law.
A leading explanation of the “sunset” phenomenon is that lawmakers use temporary tax legislation to extract rents from interest groups. Rebecca Kysar writes that “the continuous threat of expiration allows Congress to extract more rents from interest groups through the use of sunset provisions that require those groups repeatedly to return to the congressional floor to achieve their goals.” Edward McCaffery and Linda Cohen likewise hypothesize that lawmakers will maximize rents through a “stringing-along” strategy, using extenders bills to get “multiple bites at the apple.” Others have offered similar accounts.
The rent-extraction hypothesis might lead one to expect that temporary tax breaks will be a permanent feature of the Code, as lawmakers have little incentive to relinquish the rents they derive from the extenders game. But that prediction has proven wrong: earlier this month, Congress voted to make 22 once-temporary tax breaks permanent, including all four provisions mentioned above. Congress’s recent action gives rise to a puzzle: If temporary legislation allows lawmakers to maximize the rents they can extract from interest groups, why did Congress allow these tax breaks to become permanent? Did DC suffer a sudden outbreak of public spiritedness this holiday season? Or does the rent-extraction hypothesis need updating?
I imagine that others will weigh in on this question in the coming weeks and months. My initial take, though, is that this month’s permanent extensions actually serve as evidence in favor of the rent-extraction hypothesis. This is because the rent-extraction hypothesis hinges upon the existence of campaign finance laws that limit transfers from interest groups to lawmakers in a given election cycle. Recent election law developments effectively lifted some of those limits. As a result, lawmakers can now extract rents from interest groups without using the device of temporary legislation.
In a world without campaign finance laws, the rent-extraction hypothesis would not be terribly compelling. Interest groups presumably assign a higher value to permanent legislation than to temporary legislation, and so would be willing to pay a higher price for permanent provisions. Think of temporary legislation like a lease and permanent legislation like a sale. It’s not immediately obvious why lawmakers will be able to extract more rents by “leasing” tax breaks than by “selling” them. If anything, one might think that selling would be a superior strategy because interest groups value certainty (e.g., corporations want to be able to plan multi-year R&D efforts with the assurance that the research tax credit will remain available throughout), and so may be willing to pay extra for the added certainty that comes with a permanent provision. (To be sure, even a permanent provision doesn’t lead to 100% ce[...]

Assistant Professor Daniel Hemel on the Alaska governor’s plan for a state income tax: Alaska Governor Bill Walker wants to institute a state income tax and reduce the dividend that state residents receive each year from the Alaska Permanent Fund....Assistant Professor Daniel Hemel on the Alaska governor’s plan for a state income tax:
Alaska Governor Bill Walker wants to institute a state income tax and reduce the dividend that state residents receive each year from the Alaska Permanent Fund. As the New York Times explains:
Mr. Walker’s recovery plan would take more from residents through the income tax and would give them less as well, by changing the formula under which the dividend is paid. The income tax would be 6 percent of the amount an Alaskan currently pays in federal taxes, so a person who owed $10,000 to the Internal Revenue Service would also need to write a $600 check to Alaska. Dividend payments would be tied directly to royalties that decrease or increase with oil production. Because oil production is down, next year’s payout would be cut by roughly half under the proposal, to about $1,000 a person.
On first glance, Walker’s plan seems like a rational response to the worldwide drop in petroleum prices, which has reduced revenues for the oil-dependent state. But when one considers the federal income tax consequences of Walker’s proposal, the logic becomes less clear.
Start with the way that federal tax law will treat the amount Alaska residents pay in state income tax. That amount is deductible from taxable income under section 164 of the Internal Revenue Code. Not all Alaska residents will benefit from the section 164 deduction though. Roughly two-thirds of taxpayers (primarily in the lower and middle income brackets) claim the standard deduction instead of itemizing; for them, the section 164 deduction is worthless. Some higher-income taxpayers are subject to the alternative minimum tax (AMT); those taxpayers also don’t benefit from section 164 because state taxes aren’t deductible from AMT income. And even for taxpayers who itemize and who aren’t hit by the AMT, the value of the deduction may be limited by various other features of tax law. For example, state taxes are included in adjusted gross income for purposes of the 2% floor on miscellaneous itemized deductions, the Pease limitation, and the personal exemption phaseout (PEP). The section 164 deduction is not one of the miscellaneous itemized deductions limited by the 2% floor, but the value of the deduction is reduced by the Pease provision for some taxpayers.
Next, consider the fact that dividends from the Permanent Fund are treated as ordinary income for federal tax purposes. This means that many Alaska residents will pay federal income tax on their $1,000 dividend but won’t be able to deduct the amount they pay in state income tax. So say that an Alaskan resident in the 25% federal income tax bracket claims the standard deduction and pays $16,667 in federal income tax. She will then owe $1,000 in state income tax (6% of $16,667) and will receive a $1,000 dividend from the Permanent Fund. She won’t benefit from the section 164 deduction for the $1,000 she pays in state income tax, but she will be liable for $250 in federal income tax due to the dividend she receives from the Permanent Fund. In other words, even though her tax payment to the state exactly equals the dividend she receives from the state, she is $250 worse off after factoring in the federal income tax consequences.
What is especially curious about this result is how easily Alaska can avoid it. Consider an alternative in which Alaska imposes a state income tax on residents equal to 6% of federal income tax due, while also eliminating the Permanent Fund dividend and replacing it with a $1,000 refundable tax credit. Thus, an Alaska resident who owes nothing in federal income tax would receive a $1,000 check from the state; a resident who owes $[...]

Assistant Professor Daniel Hemel on the Vanguard Group’s potential tax liabilities: CBS News posted a story on its website last week headlined, “Vanguard investors, your fund fees could quadruple.” The report follows a Newsweek article earlier this month asserting that...Assistant Professor Daniel Hemel on the Vanguard Group’s potential tax liabilities:
CBS News posted a story on its website last week headlined, “Vanguard investors, your fund fees could quadruple.” The report follows a Newsweek article earlier this month asserting that Vanguard may have to quadruple its average fee in response to claims that the mutual fund company has been avoiding taxes. The University of Chicago, like nearly 2,000 other employers, offers retirement plans to its employees through Vanguard, so the subject is of more than academic interest here. Could it really be that Vanguard will have to quadruple its expense ratio in order to cover its tax liabilities?
In a word: No. There is no plausible scenario in which tax law would require Vanguard to quadruple its fees. If the IRS chooses to enforce transfer pricing rules against Vanguard, the mutual fund company may have to increase its fees modestly—but nowhere close to the “quadrupling” suggested by media reports.
First, a bit of background on Vanguard’s structure: Vanguard Group, Inc. (VGI) is a corporation headquartered in Pennsylvania and chartered in Delaware that provides investment management and administrative services to various Vanguard mutual funds. VGI is a C corporation for federal tax purposes; the mutual funds are regulated investment companies, or “RICs.” VGI must pay corporate income tax just like any other C corporation; the mutual funds generally are not taxed as long as they distribute at least 90% of their income to investors. The mutual funds technically own VGI—an arrangement described in more detail by John Morley in this excellent Yale Law Journal article.
The Vanguard mutual funds pay VGI for the services that VGI provides. As Reuven Avi-Yonah explains in a recent Tax Notes article, VGI is a “controlled” taxpayer in relation to the mutual funds for purposes of the transfer pricing rules because the mutual funds own VGI. Transfer pricing rules require VGI to report income based on the price that it would have received from each mutual fund in an “arm’s length” transaction. So if a Vanguard mutual fund pays VGI $5 for services that would have been priced at $10 in an arm’s length transaction, VGI must pay taxes as if it had received $10 from the mutual fund, even though it actually received only $5.
VGI charges the mutual funds “at cost,” without any markup. The problem with this approach from a tax perspective is that service providers generally don’t price their services at cost; they try to earn a profit. According to former Vanguard tax attorney-turned-whistleblower David Danon, VGI is underreporting its taxable income because it doesn’t account for the markup it would receive if it dealt with the mutual funds at arm’s length. Vanguard has an obvious incentive to report lower income for VGI and (correspondingly) higher income for the mutual funds because VGI is taxable at a 35% corporate rate while the mutual funds generally pay no tax. (Investors in the mutual funds may be liable for tax, but many of Vanguard’s customers hold their mutual fund shares through IRAs, 401(k) plans, and other vehicles that are effectively tax-exempt.)
Professor Avi-Yonah expands on this argument in his article and in an expert report submitted to the IRS and SEC in connection with Danon’s whistleblower submission. Avi-Yonah’s basic logic strikes me as sound. VGI should be reporting income as if it were receiving arm’s length prices from Vanguard mutual funds. If it’s not, then VGI is underpaying the IRS and state tax authorities.
The harder question is: by how much is Vanguard underrepo[...]

Assistant Professor Daniel Hemel on the “duty” of CEOs to minimize corporate taxes: CNBC’s Jim Cramer came to the defense of Apple CEO Tim Cook yesterday, arguing that Apple’s CEO has a duty to minimize the company’s corporate tax liabilities....Assistant Professor Daniel Hemel on the “duty” of CEOs to minimize corporate taxes:
CNBC’s Jim Cramer came to the defense of Apple CEO Tim Cook yesterday, arguing that Apple’s CEO has a duty to minimize the company’s corporate tax liabilities. Cramer said on CNBC’s “Squawk on the Street”:
“One of the things I did take seriously when I was in law school was taxes. The main thing you learn is that tax avoidance is everybody’s . . . duty. You’re supposed to try to avoid.”
Cramer graduated from Harvard Law School in 1984, and it’s perhaps unfair to hold him at fault for misremembering what he learned in a tax course more than 30 years ago. But Cramer seems to be confusing “right” and “duty” here. Justice Sutherland famously said in Gregory v. Helvering that “[t]he legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted.” 293 U.S. 465, 469 (1935). The claim that directors and officers have a “duty” to minimize a corporation’s taxes, though, can indeed be doubted. In fact, the Delaware Chancery Court recently rejected such a claim.
The question whether corporate directors and officers have a duty to minimize taxes arose in a 2012 case, Freedman v. Adams. That case concerned an executive compensation plan approved by the board of XTO Energy, Inc., a publicly traded company. Section 162(m) of the Internal Revenue Code generally prevents a publicly traded corporation from claiming a tax deduction for compensation to a CEO or other top executive in excess of $1 million a year. Section 162(m) allows a deduction, however, for payments made pursuant to a shareholder-approved plan and tied to “the attainment of one or more performance goals” (known as a “§ 162(m) plan”).
The plaintiff in Freedman argued that the XTO board “had a duty to adopt a § 162(m) plan” so that payments to top executives in excess of $1 million would be tax-deductible. The Delaware Chancery Court disagreed. As Vice Chancellor John Noble wrote:
The Plaintiff does not cite any case law of this Court or the Delaware Supreme Court directly supporting the purported fiduciary duty to minimize taxes. . . . For reasons that are both numerous and obvious, this Court is not convinced that it should endorse this proposed new duty. Tax strategy is a complex, dynamic area of corporate decision-making that affects and is affected by many other aspects of a company. . . . Minimizing taxes can also require large expenditures for legal and accounting services and may entail some level of legal risk. As such, decisions regarding a company’s tax policy are not well-suited to after-the-fact review by courts and typify an area of corporate decision-making best left to management's business judgment, so long as it is exercised in an appropriate fashion. This Court rejects the notion that there is a broadly applicable fiduciary duty to minimize taxes . . . .
Freedman v. Adams, 2012 Del. Ch. LEXIS 74, at *45-46 (Del. Ch. Mar. 30, 2012), aff’d on other grounds, 58 A.3d 414 (Del. 2013). (The Chancery Court reached a similar result three months later in Seinfeld v. Slager, 2012 Del. Ch. LEXIS 139 (Del. Ch. June 29, 2012), in which Vice Chancellor Sam Glasscock hewed closely to the reasoning in Freedman. For more on Seinfeld, see Stephen Bainbridge’s blog.)
Freedman might seem inconsistent with Cramer’s claim. But before dismissing Cramer’s assertion entirely, a few qualifications are in order:
First, Freedman is a Delaware case, and Apple is a California corporation. I am not aware of[...]

Assistant Professor Daniel Hemel on a new bill that could affect the constitutional status of the U.S. Tax Court: The House of Representatives voted 318-109 on Thursday to approve a package of tax breaks that will cost an estimated $680...Assistant Professor Daniel Hemel on a new bill that could affect the constitutional status of the U.S. Tax Court:
The House of Representatives voted 318-109 on Thursday to approve a package of tax breaks that will cost an estimated $680 billion over the next decade. The big-ticket items in the package include permanent extensions of the business research credit and the child tax credit, as well as a two-year delay of the controversial “Cadillac” tax on expensive employer-sponsored health insurance plans. Meanwhile, one provision in the package that has drawn little attention so far could have significant implications for the United States Tax Court. The provision, buried on page 231 of the 233-page bill, puts the 19-member court in a state of constitutional limbo.
The provision is entitled “Clarification Relating to United States Tax Court,” and it amends the Internal Revenue Code to add the following language:
The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.
The provision appears to have been added in response to the D.C. Circuit’s 2014 decision in Kuretski v. Commissioner. That case involved a couple, Peter and Kathleen Kuretski, who went to Tax Court to challenge an IRS levy on their Staten Island home. After the Tax Court ruled against them, the Kuretskis launched an attack on the court’s constitutional structure. The D.C. Circuit summarized the Kuretskis’ core argument as follows:
The Kuretskis now contend that the Tax Court judge may have been biased in favor of the IRS in a manner that infringes the constitutional separation of powers. They point to 26 U.S.C. § 7443(f), which enables the President to remove Tax Court judges on grounds of “inefficiency, neglect of duty, or malfeasance in office.” According to the Kuretskis, Tax Court judges exercise the judicial power of the United States under Article III of the Constitution, and it violates the constitutional separation of powers to subject any person clothed with Article III authority to “interbranch” removal at the hands of the President. The Kuretskis thus ask us to strike down 26 U.S.C. § 7443(f), vacate the Tax Court's decision, and remand their case for re-decision by a Tax Court judge free from the threat of presidential removal and hence free from alleged bias in favor of the Executive Branch.
The D.C. Circuit rejected the Kuretskis’ claim. It assumed, arguendo, that “‘interbranch’ removal of a Tax Court judge would raise a constitutional concern.” But it found “no cause for concern in fact.” According to the D.C. Circuit, the Tax Court “exercises Executive authority as part of the Executive Branch,” and “[p]residential removal of a Tax Court judge thus would constitute an intra—not inter—branch removal.” (No Tax Court judge has ever actually been removed by the President.)
This holding evidently unnerved Senator Orrin Hatch, who chairs the tax writing committee in the upper chamber. Senator Hatch introduced a bill this past April with language identical to the “clarification” found in the extenders package. The accompanying report explained:
The Committee is concerned that statements in Kuretski v. Commissioner may lead the public to question the independence of the Tax Court, especially in relation to the Department of Treasury or the Internal Revenue Service. The Committee wishes to remove any uncertainty caused by Kuretski v. Commissioner, and to ensure that there is no appearance of institutional bias.
This “clarification” seems to be motivated by entirely noble sentiments. But it has the po[...]

Assistant Professor Daniel Hemel on tomorrow’s Supreme Court oral argument in Fisher v. University of Texas:
It’s the end of the fall term on university campuses across the country, and so professors are gearing up to grade final exams. Meanwhile, the Supreme Court is gearing up for oral arguments this Wednesday in a case brought by Abigail Fisher, a white student who claims that the University of Texas at Austin’s race-based affirmative action program is unconstitutional. End-of-term exam grading gives rise to a thought experiment with potential implications for Fisher’s case—a case likely to be among the most consequential of this Supreme Court term.Assistant Professor Daniel Hemel on tomorrow’s Supreme Court oral argument in Fisher v. University of Texas:
It’s the end of the fall term on university campuses across the country, and so professors are gearing up to grade final exams. Meanwhile, the Supreme Court is gearing up for oral arguments this Wednesday in a case brought by Abigail Fisher, a white student who claims that the University of Texas at Austin’s race-based affirmative action program is unconstitutional. End-of-term exam grading gives rise to a thought experiment with potential implications for Fisher’s case—a case likely to be among the most consequential of this Supreme Court term.
Imagine that a professor keeps a Microsoft Excel spreadsheet with all his students’ names, as well as demographic information (race, gender, etc.) and the students’ scores on the midterm and final exams. The professor doesn’t intend to use the demographic information in the grading process; he just wants to be able to know at the end of the term whether there are substantial racial or gender disparities in students’ scores. But there’s a snag in his plan: Unfortunately, the professor makes a mistake in writing the Excel formula that will spit out final grades. The professor meant for the formula to spit out the weighted average of midterm and final exam scores, but absentmindedly and accidentally, he subtracted 10 points from the grades of all the female students in the class.
We might forgive the absentminded professor for his error. Anyone who uses Excel often enough has probably made the mistake of adding the wrong columns at one point or another. But all would agree that the error should be corrected. The professor should add 10 points back to the women’s scores so that the final grades reflect each student’s actual performance in the class.
Might the male students in the class argue that the professor improperly engaged in gender-based affirmative action? I doubt it. I think we would all say that once the professor recognized his unfortunate error, the right thing for him to do was to correct it. Perhaps some would say that the professor shouldn’t have been tracking gender in the first place, though we can also imagine good reasons why the professor would want to know whether men had systematically outperformed women in his class or vice versa. (Maybe the data might lead him to adjust his teaching style or his exam questions next term.) In any event, we wouldn’t say that the 10-point correction reflected a “preference” for female students. Rather, adding 10 points back to the women’s scores made the grading system more meritocratic.
The Excel example is only hypothetical; the possibility of educators accidentally subtracting points from students of a specific demographic group is not. Indeed, we have reason to believe that educators across the country are making a mistake similar to the absentminded professor’s formula-writing error. Some of the strongest evidence comes from the Implicit Association Test, pioneered by psychologists Mahzarin Banaji and Anthony Greenwald. One version of the test asks subjects to classify children’s faces as “African A[...]